Are Housing Mortgage Loan Restrictions Effective for Housing Price Stabilization?

The purpose of this paper is to examine the effects of housing mortgage loan regulations (LTV and DTI) on housing price appreciation in Korea. The applied areas of the regulations were altered when the policies were implemented and the regulations vary from areas to areas. I classify the areas into regulated and non-regulated regions. Then selection bias is corrected with propensity score matching considering that the housing market is localized, and next the policy effect is analyzed with difference-in-differences. The findings indicate that (i) stricter mortgage loan regulations in 2007 and 2009 decrease the housing price growth rate; (ii) the tightening of regulations in 2011 and 2017 brings down housing price appreciation in the short term; (iii) after the global financial crisis, the magnitude of the policy effect has steadily diminished. Even though the direction of the policy is frequently changed, the trend implies that the tightening of mortgage loan regulations effectively stabilize housing price appreciation as borrowing constraints restrict the possibility of speculative demand.